ACCT 1A&B: Fundamentals of Accounting

BCSV

Fundamentals of Accounting I
Conceptual Framework

Choose the letter of the best answer.

1. The basic objective of accounting is

A. To provide the information that the managers of an economic entity need to control its
operations.
B. To provide information that the creditors of an economic entity can use in deciding whether
to make additional loans to the entity.
C. To measure the periodic income of the economic entity.
D. To provide quantitative financial information about an entity that is useful in making rational
economic decision.

2. The communicating process of accounting includes all of the following, except

A. Recording
B. Classifying
C. Summarizing
D. Interpreting

3. What is the law regulating the practice of accountancy in the Philippines?

A. R.A. No. 9298
B. R.A. No. 9198
C. R.A. No. 9928
D. R.A. No. 9892

4. It is the body authorized by law to promulgate rules and regulations affecting the practice of the
accountancy profession in the Philippines.
A. Board of Accountancy
B. Philippine Institute of Certified Public Accountants
C. Securities and Exchange Commission
D. Financial Reporting Standards Council

5. It is the accounting standard setting body in the Philippines at the present time.
A. Accounting Standards Council
B. Auditing and Assurance Standards Council
C. Philippine Accounting Standards Board
D. Financial Reporting Standards Council

6. Accountants employed in entities in various capacity as accounting staff, chief accountant or

controller are said to be engaged in
A. Public accounting
B. Private accounting
C. Government accounting
D. Financial accounting

7. Financial accounting is concerned with

A. General-purpose reports on financial position and financial performance.
B. Specialized reports for inventory management and control.
C. Specialized reports for income tax computation and recognition.
D. General-purpose reports on changes in stock prices and future estimates of market position.
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8. Financial accounting is the area of accounting emphasizes reporting to

A. Management
B. Regulatory bodies
C. Internal auditors
D. Creditors and investors

9. Managerial accounting is the area of accounting that emphasizes

A. Reporting financial information to external users
B. Reporting to the Securities and Exchange Commission
C. Combining accounting knowledge with an expertise in data processing
D. Developing accounting information for use within an entity

10. Generally accepted accounting principles

A. Are accounting adaptations based on the laws of economic science.
B. Derive their credibility and authority from legal rulings and court precedents.
C. Derive their credibility and authority from the national government through the Securities and
Exchange Commission.
D. Derive their credibility and authority from general recognition and acceptance by the
accountancy profession.

11. Which of the following statements best describes generally accepted accounting principles?
A. They have been formulated in the public sector.
B. They have been developed on the basis of such factors as usage and practical necessity.
C. They are the same as laws within our legal system.
D. They do not apply to small entities.

12. Once an accounting standard has been established

A. The standard is continually reviewed to see if modification is necessary.
B. The standard is not reviewed unless the Securities and Exchange Commission makes a
complaint.
C. The task of reviewing the standard to see if modification is necessary is given to the PICPA.
D. The principle of consistency requires that no revisions ever be made to the standard.

13. As independent or external auditors, CPAs are primarily responsible for

A. Preparing financial statements in conformity with GAAP
B. Certifying the accuracy of financial statements
C. Expressing an opinion as to the fairness of financial statements
D. Filing financial statements with the SEC

14. The purpose of the International Financial Reporting Standards is to

A. Issue enforceable standards which regulate the financial accounting and reporting of
multinational entities.
B. Develop a uniform currency in which the financial transactions of entities throughout the
world would be measured.
C. Promote uniform accounting standards among countries of the world.
D. Arbitrate accounting disputes between auditors and international entities.

15. It is a "global phenomenon" intended to bring about transparency and a higher degree of
comparability in financial reporting in order to achieve the goal of one uniform and globally
accepted financial reporting standards.

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A. IFRS
B. Borderless accounting
C. World trade
D. Information technology

16. What is the only underlying assumption mentioned in the Conceptual Framework for Financial
Reporting?
A. Going concern
B. Accounting entity
C. Time period
D. Monetary unit

17. The financial statements that are prepared for the business are separate and distinct from the
financial statements of the owners.
A. Going concern assumption
B. Matching principle
C. Economic entity assumption
D. Accounting period assumption

18. Which basic accounting assumption is threatened by the existence of severe inflation in an
economy?
A. Monetary unit assumption
B. Periodicity assumption
C. Going concern assumption
D. Economic entity assumption

19. Which of the following is not an important characteristic of the financial statements that
accountants currently prepare?
A. The information in financial statements is expressed in units of money adjusted for changing
purchasing power.
B. Financial statements articulate with one another because measuring financial position is
related to measuring changes in financial position.
C. The information in financial statements is summarized and classified to help meet users'
needs.
D. Financial statements can be justified only if the benefits they provide exceed the costs.

20. The concept of accounting entity is applicable

A. Only to the legal aspects of business organizations
B. Only to the economic aspects of business organizations
C. Only to business organizations
D. Whenever accounting is involved

21. The valuation of a promise to receive cash in the future at present value is valid because of the
accounting concept of
A. Entity
B. Time period
C. Going concern
D. Monetary unit

22. During the lifetime of an entity, accountants produce financial statements at arbitrary points in
time in accordance with what basic accounting concept?

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A. Accrual
B. Periodicity
C. Unit of measure
D. Continuity

23. This is a complete, comprehensive and single document promulgated by IASB establishing the
concepts that underlie financial reporting.
A. Conceptual Framework for Financial Reporting
B. Conceptual Framework for Financial Statements
C. Conceptual Framework for Business Entities
D. Conceptual Framework

24. The Conceptual Framework is intended to establish

A. Generally accepted accounting principles in financial reporting by entities.
B. The meaning of present fairly in accordance with GAAP.
C. The objectives and concepts for use in developing standards of financial accounting and
reporting.
D. The hierarchy of sources of GAAP.

25. Which of the following statements is true concerning the Conceptual Framework?
I. The Conceptual Framework is concerned with general purpose financial
statements including consolidated financial statements.
II. Special purpose financial reports, for example, prospectuses and computations
prepared for taxation purposes, are within the scope of the Conceptual
Framework.
A. I only
B. II only
C. I and II
D. Neither I nor II

26. In the Conceptual Framework for Financial Reporting, what provides the "why" of accounting?
A. Measurement and recognition concept
B. Qualitative characteristic of accounting information
C. Element of financial statement
D. Objective of financial reporting

27. Which of the following is not true concerning the Conceptual Framework? :
I. The Conceptual Framework should be a basis for standard setting.
II. The Conceptual Framework should allow practical problems to be solved more
quickly.
III. The Conceptual Framework should be based on fundamental truths that are derived
from the laws of nature.
A. II only
B. III only
C. II and III only
D. I and II only

28. The "primary user" of financial information include

I. Existing and potential investors
II. Existing and potential lenders and other creditors

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III. User group such as employees, customers, governments and their agencies, and the
public
A. I only
B. I and II only
C. I and III only
D. I, II and III

29. These users require information on risk and return on investment.

A. Investors
B. Employees
C. Lenders
D. Customers

30. These users are interested in information about the profitability and stability of an entity in order
to assess the ability of the entity to provide remuneration, retirement benefits and employment
opportunities.
A. Customers
B. The public
C. Governments and their agencies
D. Employees

31. These users are interested in information about the continuance of an entity when they have a
long-term involvement with or are dependent on the entity.
A. Customers
B. Employees
C. Trade unions
D. Suppliers

32. These users need information on trends and recent developments where an entity makes a
substantial contribution to the local economy providing employment and using local suppliers.
A. Customers
B. The public
C. Governments and their agencies
D. Employees

33. The accounting equation "assets = liabilities + equity'' is

A. Entity theory
B. Fund theory
C. Proprietary theory
D. Residual equity theory

34. The equation. "assets minus liabilities minus preference equity equals ordinary equity" is
A. Fund
B. Entity
C. Proprietary
D. Residual equity

35. The primary accounting objective is fair presentation of the financial performance of the entity.
A. Entity
B. Proprietary
C. Residual equity

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D. Fund

36. Which of the following statements best describes the term “financial position”?
A. The net income and expenses of an entity.
B. The net of financial assets less liabilities of an entity.
C. The potential to contribute to the flow of cash and cash equivalents to the entity.
D. The assets, liabilities, and equity of an entity.

37. Which of the following best describes "financial performance" of an entity?

A. The revenue, expenses and net income or loss for a period of an entity
B. The assets, liabilities and equity of an entity
C. The total assets minus total liabilities
D. The total cash inflows minus cash outflows

38. The four phases of accounting are recording, classifying, summarizing and interpreting. The
phase whereby the liquidity, solvency and profitability of an entity are significantly portrayed is
known as
A. Summarizing
B. Classifying
C. Recording
D. Interpreting

39. What are qualitative characteristics of financial statements?

A. Qualitative characteristics are the attributes that make the information provided in financial
statements useful to users.
B. Qualitative characteristics are broad classes of financial effects of transactions and other
events.
C. Qualitative characteristics are nonqualitative aspects of an entity’s position and performance
and changes in financial position.
D. Qualitative characteristics measure the extent to which an entity has complied with all
relevant standards and interpretations.

40. The fundamental qualitative characteristics are

A. Relevance and faithful representation
B. Relevance, faithful representation and materiality
C. Relevance and reliability
D. Faithful representation and materiality

41. Accounting information is considered relevant when it

A. Can be depended upon to represent the economic conditions and events that it is intended to
represent.
B. Is capable of making a difference in a decision.
C. Is understandable by reasonably informed users of accounting information.
D. Is verifiable and neutral.

42. The ingredients of relevant financial information are

A. Predictive value and confirmatory value
B. Predictive value, confirmatory value, and timeliness
C. Predictive value, confirmatory value, and materiality
D. Predictive value, confirmatory value, timeliness, and materiality

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43. What is the quality of information that gives assurance that it is reasonably free from error and
bias?
A. Relevance
B. Faithful representation
C. Verifiability
D. Neutrality

44. The ingredients of faithful representation are

A. Completeness and neutrality
B. Completeness and free from error
C. Completeness, neutrality, and free from error
D. Completeness, neutrality, free from error, and conservatism

45. In the event of conflict between the economic substance of a transaction and the legal form, the
economic substance shall prevail. This concept is known as
A. Form over substance
B. Substance over form
C. Faithful representation
D. Completeness

46. The financial accounting information is directed toward the common needs of users and is
independent of presumptions about particular needs and desires of specific users.
A. Relevance
B. Verifiability
C. Neutrality
D. Completeness

47. The enhancing qualitative characteristics of financial information are

A. Comparability and understandability
B. Verifiability and timeliness
C. Comparability, understandability, and verifiability
D. Comparability, understandability, verifiability, and timeliness

48. Financial information exhibits consistency when

A. Accounting procedures are adopted which smooth net income and make results consistent
between years
B. Gains and losses are shown separately in the income statement.
C. Accounting entities give similar events the same accounting treatment each period.
D. Expenditures are reported as expenses and netted against revenue in the period when paid.

49. The characteristic that is demonstrated when a high degree of consensus can be secured among
independent measurers using the same measurement method is
A. Relevance
B. Understandability
C. Verifiability
D. Neutrality

50. An entity issuing the annual financial reports within one month at the end of reporting period is
an example of which enhancing quality of accounting information?
A. Neutrality
B. Timeliness

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C. Predictive value
D. Representational faithfulness

51. Which of the following statements is true in relation to the enhancing qualitative characteristic of
understandability of financial information?
A. Users have a reasonable knowledge of business and economic activities and review the
information with reasonable diligence.
B. Users are expected to have significant business knowledge.
C. Financial statements shall exclude complex matters.
D. Financial statements shall be free from material error.

52. Which of the following terms best describes information that influences the economic decision of
users?
A. Reliable
B. Prospective
C. Relevant
D. Understandable

53. Which of the following terms best describes information in financial statements that is neutral?
A. Understandable
B. Comparable
C. Relevant
D. Unbiased

54. Conservatism is best described as selecting an accounting alternative that

A. Understates assets and net income
B. Has the least favorable impact on owners’ equity
C. Overstates liabilities
D. Is least likely to mislead users of financial information

55. An item would be considered material and therefore would be disclosed in the financial
statements if
A. The expected benefits of disclosure exceed the additional costs.
B. The impact on earnings is greater than 10%.
C. The standard definition of materiality is met.
D. The omission or misstatement of the amount would make a difference to the users.

56. What is meant by comparability when discussing financial accounting information?

A. Information has predictive and confirmatory value.
B. Information is reasonably free from error.
C. Information is measured and reported in a similar fashion across entities.
D. Information is timely.

57. What is meant by consistency when discussing financial accounting information?

A. Information is measured and reported in a similar fashion across points in time.
B. Information is timely.
C. Information is measured similarly across the industry.
D. Information is verifiable.

58. An ingredient of the fundamental qualitative characteristic of faithful representation is

A. Neutrality

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B. Understandability
C. Verifiability
D. Timeliness

59. Which of the following accounting concepts states that an accounting transaction shall be
supported by sufficient evidence to allow two or more qualified individuals to arrive at essentially
similar conclusions?
A. Conservatism
B. Objectivity
C. Periodicity
D. Stable monetary unit

60. The principle of objectivity includes the concept of

A. Summarization
B. Classification
C. Conservatism
D. Verifiability

61. Which of the following relates to both relevance and faithful representation?
A. Consistency
B. Feedback value
C. Verifiability
D. Timeliness

62. Which of the following situations violates the concept of faithful representation?
A. Financial statements were issued nine months late.
B. Data on segments having the same expected risks and growth rates are reported to analysts
estimating future profits.
C. Financial statements included an item of property, plant, and equipment with carrying
amount increased to management estimate of market value.
D. Management reports to shareholders regularly refer to new projects undertaken, but the
financial statements never report project results.

63. The usefulness of providing information in financial statements is subject to the constraint of
A. Consistency
B. Cost-benefit
C. Reliability
D. Representational faithfulness

64. Classifying, characterizing and presenting information clearly and concisely makes the
information
A. Understandable
B. Comparable
C. Verifiable
D. Timely

65. If there is undue delay in the reporting of information, it may lose its
A. Relevance
B. Relevance and faithful representation
C. Usefulness
D. Faithful representation

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66. The underlying theme of the Conceptual Framework is

A. Decision usefulness
B. Understandability
C. Timeliness
D. Comparability

67. What is the objective of financial reporting?

A. To provide information about the financial position, financial performance and changes in
financial position of an entity.
B. To prepare and present a statement of financial position, an income statement, a statement
of comprehensive income, a statement of cash flows and a statement of changes in equity
C. To provide financial information about an entity that is useful to existing and potential
investors, lenders and other creditors in making decisions about providing resources to the
entity.
D. To prepare financial statements in accordance with all applicable standards and
interpretations.

68. Which of the following statements in relation to financial reporting is incorrect?

A. General purpose financial reports do not and cannot provide all of the information that
primary users need.
B. General purpose financial reports are designed to show the value of the reporting entity.
C. General purpose financial reports are intended to provide common information to users.
D. Financial reports are largely based on estimate and judgment rather than exact depiction.

69. The objectives of financial reporting are based on

A. The need for conservatism
B. Reporting on management’s stewardship
C. Generally accepted accounting principles
D. The needs of the users of the information

70. External events include all of the following, except

A. Sale of merchandise
B. Borrowing from bank
C. Donation received from shareholder
D. Casualty loss caused by flood, earthquake or other natural disaster

“If you can’t figure out your purpose, figure out your passion. For your passion will lead you right into your
purpose.”
~ Bishop T.D. Jakes

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Suggested Key
1. D 36. D
2. D 37. A
3. A 38. D
4. A 39. A
5. D 40. A
6. B 41. B
7. A 42. A
8. D 43. B
9. D 44. C
10 D 45. B
.
11 B 46. C
.
12 A 47. D
.
13 C 48. C
.
14 C 49. C
.
15 A 50. B
.
16 A 51. A
.
17 C 52. C
.
18 A 53. D
.
19 A 54. B
.
20 D 55. D
.
21 C 56. C
.
22 B 57. A
.
23 A 58. A
.
24 C 59. B
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.
25 A 60. D
.
26 D 61. A
.
27 B 62. C
.
28 B 63. B
.
29 A 64. A
.
30 D 65. A
.
31 A 66. A
.
32 B 67. C
.
33 A 68. B
.
34 D 69. D
.
35 A 70. D
.

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